Carmakers hope to attract young with technology

By Jack Ewing / NY Times News Service,
FRANKFURT, Germany

Sun, Sep 08, 2013 - Page 14

Sometimes it is more fun to dream about the future than dwell on the present, especially if you are a European car executive.

With sales at their lowest level in two decades, auto industry managers gathering for the Frankfurt auto show starting on Wednesday will be doing their best to focus on shiny new technologies rather than on the European car market, which, in contrast to the thriving market in the US, is in a terrible state.

The buzz at the show is likely to be about new battery-powered cars and vehicles that are able to drive themselves. Those are more cheerful topics than auto sales, which have fallen 20 percent in Western Europe since the financial crisis began in 2008 and are at their lowest level since 1993.

Only European carmakers with substantial sales in the US or China — namely, BMW, Mercedes and Volkswagen — have escaped relatively unscathed.

The emphasis on technology is more than just a distraction from market misery. Carmakers are desperate for ways to excite young buyers, who are increasingly apathetic about car ownership. The push toward cars that are rechargeable and loaded with software is part of a search to make automobiles as essential to young adults as smartphones. Otherwise, there is a big risk that auto sales may never reach their previous peaks even if the European economy continues to improve.

HIP PRODUCTS

“There are products that are hipper for young people than cars,” said Ferdinand Dudenhoffer, a professor at the University of Duisburg-Essen in northern Germany and an industry analyst. “The car companies are still using the old marketing pitch — more horsepower. That doesn’t speak to young people anymore.”

Interest in battery-powered cars has faded in recent years after disappointing initial sales, but could pick up again this year with the market introduction of the BMW i3. The compact is arguably the most revolutionary new design by an established carmaker in years, not only because of its electric propulsion system, but also because the passenger compartment is made of carbon fiber rather than steel, to save weight and extend the distance the car can travel between charges.

There is also speculation that Continental, a German components supplier, will announce an alliance with Google, the Internet company, next week to further develop self-driving cars. A spokesman for Continental, which will hold a press conference at the auto show on Tuesday, declined to comment.

As such initiatives illustrate, it is no longer enough for a car to take a person from one place to another without breaking down. A car must be green, so the owner does not feel guilty driving it, and being in the car should not interrupt the perpetual connectivity that many younger people take for granted.

BMW is going to extremes to make the i3 the most carbon-neutral car on the road. A wind turbine outside the BMW factory in Leipzig provides power for the i3 assembly line and the carbon fiber for the passenger compartment comes from a factory in Washington state that uses hydropower. Moreover, the i3 has no tailpipe emissions, unless buyers choose a range-extender version that has a small gasoline motor.

With a price of about US$42,000 in the US, the i3 will be an option only for higher-end buyers when it arrives in showrooms by the middle of next year, though government incentives could lower the price by more than US$7,000. However, since BMW’s clientele already tends to be wealthy and urban, the company may be in a better position than other carmakers to find a market.

“What the mobile phone did for communication, electric mobility will do for individual mobility,” BMW chief executive said during an introduction event for the i3 in New York in July.

RUNNING ON BATTERIES

Despite Reithofer’s enthusiasm, no one expects battery-powered cars to sell in large numbers soon, and certainly not to solve the industry’s deep-seated problems. About 77,000 electric vehicles were sold in the US during the past 12 months, far more than any other country, Roland Berger Strategy Consultants in Munich said. That number, which includes cars like the Chevy Volt that have range-extender motors, is tiny compared with a total 14.5 million cars sold in the US last year.

European carmakers have also been cutting costs and deal with factories that are operating well below capacity. Underused factories are ruinous for carmakers because many operating costs remain the same no matter how many cars a plant produces. In Italy, home of Fiat, factories are producing only 40 percent as many vehicles as they could, estimates by the Organisation for Economic Co-operation and Development show.

European carmakers have been shutting down plants or sometimes idling them temporarily to avoid the political outcry that accompanies a plant closure. General Motors, which makes Opel cars in Europe and is planning to stop producing cars at a plant in Bochum, Germany, reduced its loss on the Continent to US$100 million in the second quarter from US$400 million a year earlier.

PSA Peugeot Citroen, which may be the most troubled big carmaker in Europe, cut its loss for the first half of this year to 510 million euros (US$672 million) from 657 million euros a year earlier, in part by laying off some workers.

Overall, the European car market may be close to its nadir, IHS Automotive analyst Tim Urquhart said.

“In the medium term, it will stabilize and then bump along the bottom for a bit,” he said, adding: “Everyone is asking me when are we going to get back to precrisis levels. It’s going to be a long time.”